Reasons for not consolidating subsidiaries

05-Aug-2019 05:33

It would be difficult for an investor or financial analyst to gather together all the accounting reports of a parent company and its many subsidiaries in order to get an idea of the financial health of the total enterprise, so parent companies are now required to report their finances on a consolidated basis.Occasionally the parent will make a separate report of its own finances, but that cannot stand alone and must be accompanied by the consolidated report.Generally accepted accounting principles (GAAP) require consolidated financial statements from parent companies that own or control subsidiary companies or have controlling interests in joint ventures and strategic partnerships.To report only the financial information of the parent company tells only part of the story of the entire enterprise since each subsidiary contributes both income and liabilities to the financial strength of the parent.In both cases, investor obtains joint control over some business with some other investor.Before 2013, IAS 28 included the rules for joint arrangements, but now, we should look to IFRS 11.Growing a company often involves buying out the competition to acquire their customers and expanding business through adding new products, services and technology.These additions to a company's offering line usually means purchasing smaller companies that service particular niches through their own product lines or technologies.

Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager.

Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.